Brazilian Democracy Faces Obstacles from the North

RIO DE JANEIRO, BRAZIL -- In this slum carved out of the hilltops overlooking Rio de Janeiro, Claudia de Andrade Burgo explains why she plans to vote for Lula, the presidential candidate of the Workers' Party, in Brazil's 2002 elections. "He is from the people -- the poorer classes. The Workers' Party is more likely to create jobs."

Claudia is a 31-year-old single mother with two children, who earns about $40 a month for childcare work. She has lived all her life in Jacarezinho, a favela -- one of the slums surrounding Rio, where drug dealers are often the law and police fear to tread. She is ready for change in Brazil.

But unknown to Claudia, her vote could be cancelled by the decisions of Wall Street firms some 5000 miles away. Last week Luis Ignacio da Silva -- or Lula as he is popularly known -- pulled ahead in the polls. He scored 38 percent, with the nearest competitor at 16 percent.

Brazil's financial markets showed no reaction, until the US financial giants Merrill Lynch and Morgan Stanley Dean Witter downgraded Brazilian bonds in response to the polls. The Brazilian stock market dropped more than 4 percent in one day, and the press broadcast Wall Street's warnings far and wide.

The power of these firms to move financial markets -- and thereby intimidate the electorate -- is a growing threat to democracy in Brazil, as well as in other developing countries.

In the case of Brazil, Wall Street's warning seemed unfounded, and it raised suspicions of political motives. The Workers' Party has made clear its intention to honor the government's existing obligations, and there is little reason to believe otherwise. That's why Brazilian financial markets showed no reaction to the poll results, until Wall Street weighed in.

Indeed there is a strong case to be made that the Workers' Party program makes economic sense, and is sorely needed. Like most of Latin America, Brazil has suffered a drastic slowdown in economic growth over the last two decades. Income per person has barely grown: 5 percent from 1980-2000, as compared to 141 percent over the previous 20 years (1960-1980).

Yet the current government of President Fernando Henrique Cardoso has kept real interest rates here among the very highest in the world. This pleases Wall Street and has made a few Brazilians very rich, but it has stunted economic growth and greatly increased the country's debt burden. Income per person has grown by about one percent annually since Cardoso took office in 1994.

Income inequality has also worsened. Of course Brazil has long had one of the most unequal distributions of income in the world. But in the 1960s and 70s, when income per person was growing by 4.5 percent a year, the majority of Brazilians experienced at least some improvements in their living standards. That is no longer true.

The Workers' Party proposes to raise growth with lower interest rates and investment in public infrastructure. One of the most badly needed of these investments is in sewer systems: 60 percent of Brazil's households flush untreated sewage into the waterways. Poverty and fiscal austerity are terrible for the environment.

The Workers' Party has also proposed a "zero-hunger" program for the more than 30 million Brazilians who do not have enough to eat. This would include a combination of food stamps, increased minimum wages, and support for small and medium-scale agriculture to produce for the domestic market.

In a nation of 175 million people that is rich in resources and has more land than the continental United States, these are feasible goals. And most observers agree that the Workers' Party has a very good track record in the localities where it has governed.

But there will be powerful opposition from special interests, at home and abroad. From the United States, it is not only Wall Street but also our government that poses a threat to fair elections in Brazil. During the 1998 election, the New York Times reported that a large US loan package would only be approved if Cardoso (rather than Lula) were elected. Such threats did not determine the outcome in 1998, but they could easily make the difference in a close election.

Given the Bush administration's support for a military coup against a democratically elected government in Venezuela, and its open intervention in last years' election in Nicaragua, we can hardly expect better behavior this time around. Ironically, most Americans believe we should let Brazilians (and everyone else) choose their own governments. But that kind of thinking has yet to trickle up to Wall Street or Washington.